Tuesday, May 15, 2018

Sam Webb: Stray thoughts in a dangerous world

Stray thoughts in a dangerous world

Sam Webb



1. The editors of the NYT rightfully condemn Trump and Netanyahu for yesterday's calamitous events that resulted in the loss of so many Palestinian lives and the injury of so many more. The power of the editorial, however, loses some of its potency in the final two paragraphs. It reads:

"Israel has every right to defend its borders, including the boundary with Gaza. But officials are unconvincing when they argue that only live ammunition — rather than tear gas, water cannons and other nonlethal measures — can protect Israel from being overrun.

Led too long by men who were corrupt or violent or both, the Palestinians have failed and failed again to make their own best efforts toward peace. Even now, Gazans are undermining their own cause by resorting to violence, rather than keeping their protests strictly peaceful."

This strikes me as gratuitous, an attempt to protect its flank from attacks from the right. But is that really necessary? Doesn't it take away its main message? Is equivalence of the two sides a reality or an invention that conceals the preponderance of power on the Israeli side and the steady expansion of the Israeli state at the expense of Palestinian lands and rights? And shouldn't the violence of the bully be distinguished from the person or people on the receiving end who resist.

The Times' editors would have served themselves and their readers better had they repeated their condemnation of Trump and Netanyahu, both of whom wrongly operate on the assumption that political power grows out of the barrel of of a gun and can erase the national aspirations of an oppressed people, not to mention insisted on the urgency of a just settlement of the long delayed and just statehood claims of the Palestinian people. There is, after all, no other road to mutual peace and security in that part of the world.

2. In an oped in the NY Times, David Brooks writes,

"There is growing reason to believe that Donald Trump understands the thug mind a whole lot better than the people who attended our prestigious Foreign Service academies.

"The first piece of evidence" Brooks goes on, "is North Korea. When Trump was trading crude, back-alley swipes with 'Little Rocket Man,' Kim Jong-un, about whose nuclear button was bigger, it sounded as if we were heading for a nuclear holocaust led by a pair of overgrown prepubescents."

"In fact," Brooks continues, "Trump's bellicosity seems to have worked. It's impossible to know how things will pan out, but the situation with North Korea today is a lot better than it was six months ago. Hostages are being released, talks are being held. There seems to be a chance for progress unfelt in years."

This claim is mistaken and dangerous. It is mistaken insofar as it fails to account for the role of China, the thawing of relations between the two Koreas, the new political landscape in South Korea, and, not least, the undeniable fact that North Korea has been left behind by its modernizing neighbors in East Asia in nudging Kim Jong-un to discuss de-nuclearization, mutual security, and a new era of relations between the North and South. People forget that East Asia has been the most dynamic center of capital accumulation, economic growth, and social modernization in the world over the past three decades. To think that the North Korean elite wants a piece of the action wouldn't be an outlandish assumption.

It is dangerous insofar as it suggests, even if in a slightly qualified way, that saber-rattling and muscle flexing are the best means of settling disputes not only on the Korean Peninsula, but in other trouble spots in the world as well. And Brooks does so without so much as considering, for even a moment, the potential negative consequences of such a posture.

What happens if Trump's bullying doesn't achieve its expected results. Is Brooks ready to support Trump when he moves from words to weapons, from threats to regime change? Or decides to engulf the world in flames? Or teaches "Rocket Man and other thugs" a harsh lesson?

If Trump understands the mind of a thug, as Brooks says, there is a simple reason for this — Trump himself is a thug and, for that matter, the most dangerous one in the world today. But this inexplicably goes unmentioned by Brooks. Trump is bellicosity, writes Brooks, but his "bellicosity' is making the world a safer place.

Really?

Perhaps I should be surprised by Brooks' take on Trump, but that would be a lie. Many consider him "public intellectual," but he has done little to earn that title in my view. His commentary is filled with empty abstractions and pious moralizing. If his feet are planted anywhere, it is in mid-air and above the fray.

From this perch, he sanctimoniously gives counsel to both sides. His opinions are occasionally interesting, usually vapid, and from time to time, as I've tried to demonstrate above, are irresponsible and dangerous.

3. Trump's decision to opt out of the nuclear agreement with Iran, much like his withdrawal from the Paris climate change accord, does more than isolate the U.S. on the global stage and rupture our alliances internationally. It also — and this point should be emphasized — existentially endangers the well being of the American people, not to mention people worldwide.

Moreover, what prompted Trump's action was more than his singular desire to undo President Obama's accomplishments in the global theater. It was driven as much by Trump's view that the preponderance of military power in U.S. hands gives him the ability to unilaterally dictate to the rest of the world, and in turn, the world — again in Trump's view — has no other option than to capitulate to his dictates, even if reluctantly. Trump, in effect, believes — and now he is surrounded by advisors of like mind — that there are no limits to the projection of U.S. power, despite much evidence to the contrary..

Indeed, one has to wonder if high on the White House's agenda is regime change in Iran. After all, that is the overweening desire of not only the Trumpists, but also the Saudi and Israeli governments. The latter two, notwithstanding the free pass given to them by the major media, are anything but innocent actors in the Middle East.

4. Here's a tactical conundrum — how to strengthen the progressive current in the Democratic Party, while at the same time helping to build — what is strategically necessary — a common front against Trump and GOP this fall. Not so simple in my view. Any solution, however, must include, among other things, discussions with local Democrats and the other makers and shakers in every congressional district. And we should bear in mind that in many CDs — especially non-urban — that have to be flipped if Democrats are to regain control of Congress, the overall lay of the land is different from what liberals and left thinkers might be familiar with, the best candidates may not have impeccable left credentials, and the strength of the progressive-left is much thinner and loosely organized.

For example, Conor Lamb, who won a House seat in a special election in western Pennsylvania, didn't easily fit into the progressive category. And yet, he gained the support of progressive and left people as well as the full and indispensable support of the labor movement.

All of which leads me to believe that this tactical conundrum will only be solved concretely and in the context of the overriding imperative of electing a Democratic Congressional majority — not by way of some abstract formula like "fight the establishments of both parties." The latter may sound radical, but from a strategic and tactical standpoint it is badly misguided.

In these circumstances, the challenge is to allow for a robust debate over the Democratic Party's direction and internal organization, while at the same time maintaining a united, party-wide approach — which will take compromise, flexibility, and a retreat from political maximalism on all sides — to the central task of this moment: regaining control of Congress in the coming elections. Nothing, it is fair to say, is more important than the latter. If the democratic movement — the resistance — hopes to restrain creeping Trumpist authoritarianism and, at the same time, set the stage for a new period of reform, winning this fall is an absolute necessity.

5. The attitude of the left toward the Putin government is complicated. On the one hand, we oppose the resumption of the Cold War and its attendant dangers — a nuclear confrontation, first of all — but, on the other hand, we can't be silent in the face of Putin's systematic efforts to interfere in our elections — not to mention elections in Western Europe. And in each instance, it's on the side of right wing and authoritarian candidates and parties. Needless to say, threading this needle will take political dexterity.

6. In a wide ranging, insightful interview, Jayati Ghosh, a radical Indian economist, makes this point:

"Another — possibly more powerful — reason (for the decline of Marxism as a framework for thought) is the very political use of Marx to justify particular strategies by those ruling different countries. This meant that particularly over the course of the 20th century, major political movements, dramatic changes in economic strategy, massive socio-political upheavals and drastic attempts at social engineering were all carried out in the name of Marx. As a result, both good and bad elements of such strategies all became identified with Marxism."

"Many people," she adds, "across the world who had little or no knowledge of Marx or his writing nevertheless associated him with not just revolutions but also their aftermath, and with particular social and political systems that operated in his name."

In celebrating Marx's 200th birthday, this should be acknowledged, especially by the communist movement, along with a commitment to a Marxism that is open ended, admits new experience, accents critique, and fearlessly revises its own understandings when life and experience compel them.

7. A meandering thought: In comparing the political ascendancy  of the right against that of the left in recent decades, one has to be mindful of what seems to me an indisputable fact: the right doesn't confront capitalism — its structure, profit making, and power. The left, on the other hand, does, thus making its mission particularly challenging.

8. On a light note: Most of us, I suspect, have to find relief from the madness of Trump. Here's what I do: 1. My daily walk with my dog on the Hudson 2. Swimming, yoga, and spin class 3. Drinking wine and (craft) IPA 4. Getting ready for fall elections 5. Conversations with friends and strangers about Trump and the state of the country 6. Staying engaged in practical politics at the local level 7. Watching the NBA playoffs and Netflix 8. Reading good history books.


--
John Case
Harpers Ferry, WV

The Winners and Losers Radio Show
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America’s Collision Course With China [feedly]

America's Collision Course With China


https://www.project-syndicate.org/commentary/us-china-trade-war-conflict-by-kishore-mahbubani-2018-05
In the future, historians will lament that America's long-term policy toward China was not a result of calm calculation. Instead, they are likely to focus on how America's political polarization and simplistic ideology – shared by many who should know better – drove it into a highly damaging and utterly pointless conflict.

SINGAPORE – The world's most important bilateral relationship – between the United States and China – is also one of its most inscrutable. Bedeviled by paradoxes, misperceptions, and mistrust, it is a relationship that has become a source of considerable uncertainty and, potentially, severe instability. Nowhere is this more apparent than in the brewing bilateral trade war.



The key assertion driving the current dispute, initiated by US President Donald Trump's administration, is that America's trade deficit is too big – and it's all China's fault. US Treasury Secretary Steve Mnuchin has gone so far as to demand that China unilaterally cut its trade surplus vis-à-vis the US by $200 billion by 2020.

But most sensible economists agree that America's trade deficits are the result of domestic structural economic factors, especially low household savings, persistent government deficits, and the US dollar's role as the world's main reserve currency. According to Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, if the US wants to reduce its trade deficit, it should start by reducing its massive fiscal deficit.

Yet it is not even clear that America's trade deficit urgently needs to be cut. While the external deficit is certainly large, the US can live beyond its means in a way other economies cannot. Thanks to the dollar's reserve-currency status, the US can absorb most of the rest of the world's savings, which finance its saving shortfall. Moreover, as Trump's own Council of Economic Advisers noted in February, the US enjoys a services surplus with the world, including with China.

But it is not just the Trump administration that shuns rational economic argument. Trump's approach to trade with China enjoys more mainstream support in the US than most of his policies, because most Americans – including many who otherwise oppose Trump – are convinced that China is not playing fair. The political commentator Fareed Zakaria, for example, has stated that "on one big, fundamental point" Trump is right: "China is a trade cheat."

What all this China-bashing leaves out is that cheap Chinese imports have drastically improved the quality of life of American workers, whose median income has stagnated for 40 years. According to the consultancy Oxford Economics, buying Chinese imports saves American families around $850 annually. Given that 63% of American households do not have even $500 saved for emergencies, this is not an insignificant amount.


Chinese policymakers now put their faith in what was arguably the West's most important export: modern economic theory. Yet they remain subject to damaging decisions made by a US plagued by misperception. The question is whether China will bow to US pressure.Of course, open trade with the US and the rest of the world has enabled China to achieve the fastest poverty reduction in human history. But that does not mean that China is reaping most of the economic benefits. For example, the Chinese manufacturer Foxconn earns just $7.40 for every $800 iPhone that is sold; most of the value goes to Americans.

China's leadership is, ultimately, pragmatic. If a few symbolic concessions (like the voluntary export restraints to which Japan agreed in the 1980s) could prevent a collision, China may make them. But, when it comes to bigger – and economically unjustified – demands, China is likely to hold the line.

Here, the most obvious example is Mnuchin's demand that China abandon its "Made in China 2025" plan. China has already been subjected to American export controls on high-tech equipment (including the recently imposed seven-year ban on the sale of software or components by US companies to ZTE Corporation). It is not about to give up its quest for high-tech development, a critical element of a clear long-term strategy for moving its economy up the global value chain.

In short, however rational China tries to be, a trade war remains a real possibility – one that will hurt both Americans and Chinese. And this outcome is made all the more likely by a deepening disquiet in the bilateral relationship.

A three-month sabbatical at two leading US universities has underscored for me the extent to which attitudes toward China have soured in recent years. If Chinese policymakers were aware of the intensity of this shift – and I have informed a senior figure among them – they would realize that their calm and rational policies toward the US during the past 20 years may well not work in the next 20.

It would take an entire book to explain why America's opinion of China has turned so negative. But some reasons are obvious. Within the next decade, China will overtake the US economically, despite not being a democracy. Several thoughtful Americans have told me that they could live with a larger China, if it was democratic.

Here, again, there is some irrationality at play: a democratic China would be far more susceptible to populist and nationalist pressures, and thus would probably be a pricklier partner for the US. Yet the US remains blinded by ideology, and thus is unable to see the benefits of a China guided by economic rationality.

In the future, historians will lament that America's long-term policy toward China was not similarly a result of calm calculation. Instead, they are likely to focus on how America's political polarization and simplistic ideology – shared by many who should know better – drove it into a highly damaging and utterly pointless conflict.

 -- via my feedly newsfeed

Krugman Just Saying Yes to Drug Companies [feedly]

Just Saying Yes to Drug Companies

Paul Krugman

https://www.nytimes.com/2018/05/14/opinion/big-pharma-drug-companies.html

Last week we learned that Novartis, the Swiss drug company, had paid Michael Cohen — Donald Trump's personal lawyer — $1.2 million for what ended up being a single meeting. Then, on Friday, Trump announced a "plan" to reduce drug prices.

Why the scare quotes? Because the "plan" was mostly free of substance, controlled or otherwise. (O.K., there were a few ideas that experts found interesting, but they were fairly marginal.) During the 2016 campaign Trump promised to use the government's power, including Medicare's role in paying for prescription drugs, to bring drug prices down. But none of thatwas in his speech on Friday.

And if someone tries to convince you that Trump really is getting tough on drug companies, there's a simple response: If he were, his speech wouldn't have sent drug stocks soaring.

None of this should come as a surprise. At this point, "Trump Breaks Another of His Populist Promises" is very much a dog-bites-man headline. But there are two substantive questions here. First, should the U.S. government actually do what Trump said he would do, but didn't? And if so, why haven't we taken action on drug prices?

The answer to the first question is a definite yes. America pays far more for drugs than any other major nation, and there's no good reason we should. Basically, when it comes to drugs, we're Big Pharma's sucker of last resort.

Bear in mind that the way the drug business works can't and doesn't bear any resemblance to the Econ 101, supply-and-demand stories beloved by free-market enthusiasts. What we have, instead, is a patent system in which the company that develops a drug is granted a temporary legal monopoly over sales of that drug. That system is O.K., or at least defensible, as a way to reward innovation; but nothing about the logic of the patent system says that patent owners should be free to exploit their monopolies to the max.

There is, in fact, a very strong case for government action to limit the prices drug companies can charge, just as there is a strong case for limiting monopoly power in general. And the fact that taxpayers pay a large share of drug costs both reinforces the case for limiting drug prices and gives the government a lot of leverage it could use to achieve that goal.

Of course, draconian controls on drug prices could discourage innovation. But that's not what anyone is talking about, and the benefits of moderate action would almost surely exceed the costs, for a variety of reasons: Drug companies would make less per unit but sell more, they would spend less developing drugs that largely duplicate existing medication, and more. Oh, and America, with its unique unwillingness to bargain over drug prices, is basically subsidizing the rest of the world. Wasn't Trump supposed to hate that sort of thing?

So why aren't we doing something about drug prices?

It's true that simply granting Medicare the right to negotiate prices wouldn't do much by itself. We'd also have to give Medicare some bargaining power, probably including the right to refuse to cover drugs whose prices are exorbitant. And before you denounce this as "rationing," remember that before 2003, Medicare didn't pay for drugs at all.



Still, saying no might anger some Medicare recipients; polls show overwhelming public support (92 percent!) for allowing Medicare to negotiate lower prices, but that support might erode once people realized what effective negotiation requires.

But questions about the details aren't what's stopping action on drug prices, since we haven't even gotten to the point of letting Medicare try to bring prices down. And the reason we haven't gotten to that point is, sadly, both simple and crude: Pharma has bought itself enough politicians to block policies that might reduce its profits.

I'm not just talking about campaign contributions, either. I'm talking about the personal enrichment of politicians who serve pharma's agenda.

After all, who put together the 2003 Medicare Modernization Act, which put taxpayers on the hook for seniors' prescription drug costs but specifically prohibited Medicare from negotiating prices? The answer is that it was largely devised by then-Representative Billy Tauzin, Republican of Louisiana — who shortly thereafter left Congress to become the highly paid president of the Pharmaceutical Research and Manufacturers Association, the industry's main lobbying group. If that sounds remarkably raw, that's because it is.

And Trump, far from draining this swamp, invited it in to the executive branch. Tom Price, his first secretary of health and human services, was forced out because of his lavish travel spending — but his pharma-related conflicts of interest were actually a much bigger deal. And his successor, Alex Azar, is … a former drug company executive whose stated views on drug pricing are completely at odds with everything Trump said in the campaign.

The bottom line is that American exceptionalism has prevailed again: We're still the only major nation that lets the drug companies charge whatever they like.


 -- via my feedly newsfeed

It's a Great Time to Be a Wealthy Heir After Trump Tax Overhaul [feedly]

It's a Great Time to Be a Wealthy Heir After Trump Tax Overhaul
https://www.bloomberg.com/news/features/2018-05-15/trump-tax-overhaul-doubles-estate-tax-exemption-for-super-rich


Many of the biggest beneficiaries of President Donald Trump's tax overhaul haven't even been born yet.

The new law doubles the amount that can be passed to heirs without worrying about estate and gift taxes, to about $22 million for a married couple. But the thresholds are in place only until 2025, and the ultra-rich are turning to a key tool—the dynasty trust—to secure the financial futures of their grandchildren, great-grandchildren and beyond.

"For the mega wealthy, it's really a window of opportunity that's limited," said Joan Antoniello, a principal at Mazars USA Wealth Advisors.

(photo)

Treasury secretary Steven Mnuchin views an uncut sheet of $1 notes bearing his name at the U.S. Bureau of Engraving and Printing in Washington last year.
Photographer: Andrew Harrer/Bloomberg

Dynasty trusts let the richest Americans protect and preserve wealth for generations, while minimizing tax bills. Treasury Secretary Steven Mnuchin appears to have used one prior to assuming his government role. They can be funded tax-free with assets up to the exemption limit, which was $10.98 million in 2017 for couples, even though complex tax-planning techniques can get around that threshold.

About a dozen of the nation's top wealth planners say they're seeing increased interest in the trusts as clients look to capitalize on the additional $11 million they can now easily shift over. Some families want to transfer money out of their estates into the trusts in case Democrats take back control of Congress and pull the limits back down before 2025, while others say it's best to move assets before they appreciate even more.

Fewer than 2,000 families per year could be subject to the new estate tax limits, but billions of dollars are at stake. The richest 0.1 percent of families control a growing share of U.S. wealth, from an estimated 7 percent in 1978 to 22 percent in 2012, according to a University of California, Berkeley study. The net worth of the wealthy has zoomed even higher in recent years as values of stocks, real estate and private businesses have climbed.
There's a further reason why those unaffected by the tax may still care about it: It illustrates how Trump's claim that the rich wouldn't gain at all under his tax plan is flat-out wrong.

Brad Dillon, a senior wealth planner at Brown Brothers Harriman, said he's working with a family now to take advantage of the tax law changes. His clients, a married couple who founded a successful commodities import business, set up a regular trust for their three children in 2012. They used the prior, lower estate tax exemption to put a $10 million stake of their business in it—an asset that has since almost doubled in value.

Now, with an additional $11 million to play with, the family's goal is to create a new dynasty trust to take care of grandchildren, who range from toddlers to 20-somethings, and of subsequent generations.

Here's how it works: Dynasty trusts must be set up in one of the few states, such as South Dakota or Delaware, that allow for trusts without expiration dates, but you don't have to live there to create one. They're funded with cash, stocks or other assets, and structured so they pay each generation of heirs only some of the trust's proceeds, while the rest of the money grows—free of estate and gift taxes.

The trusts generally need to pay taxes on any income or gains, but if there are stakes for private businesses, capital gains taxes aren't owed until the business is sold. With the right planning, a trust funded with a $22 million tax exemption can wind up being worth far more than $22 million.

Like most trusts, they offer control over where money goes and how it gets spent, and they can shield assets from heirs' creditors and former spouses.

The trustee for Dillon's clients—Brown Brothers Harriman's Delaware offshoot—will have the final say on who gets what. It will be guided by the clients' wishes for the money to be used primarily to fund the educations and first-home purchases of their offspring, along with any emergencies such as medical costs.

Mnuchin placed assets worth at least $32.9 million into the Steven Mnuchin Dynasty Trust I, according to a disclosure to federal ethics officials made public last year, as well as securities filings by a company at which he used to work. The assets include corporate stock and interests in a Willem de Kooning painting and a three-engine corporate jet. A Treasury spokeswoman declined to comment.

Republicans have long sought to eliminate the so-called death tax—a 40 percent levy that's been around in some form since 1916—arguing that it threatens family businesses. But pushback from Republican senators during tax negotiations resulted in the law only increasing the exemption amount temporarily.

For their part, Democrats have said that repealing the tax is a giveaway to the rich and will only exacerbate surging wealth inequality. A proposal by Senate Democrats in March called for restoring the $11 million exemption amount for couples to help pay for a $1 trillion infrastructure package.

"This idea of starting dynasty trusts will, I think, have a lot of legs in 2018," said Edward Reitmeyer, a tax partner at Marcum. Part of what's driving the interest is that the higher exemption amount makes the costs of setting up and maintaining the trusts over time better worth it, according to Reitmeyer.

The costs vary according to how complicated the financial situation is and what's going into the trust, but generally lawyers, trust companies, accountants and investment managers may be involved and will thus need to get paid.

A further reason for the interest in dynasty trusts? The "tremendous explosion" of wealth makes it essential to move those assets out of the estate before they're worth too much, said Jonathan Forster, a partner at estate planning firm Weinstock Manion. The U.S. stock market has more than tripled since 2009.

"Our toolbox is getting bigger and bigger," Forster said. "A lot of clients want to take advantage of this new law. It's definitely been a busy time."

 -- via my feedly newsfeed

Mapping Income Polarization in the United States [feedly]

Mapping Income Polarization in the United States
https://blogs.imf.org/2018/05/15/mapping-income-polarization-in-the-united-states/

By Ali Alichi and Rodrigo Mariscal

May 15, 2018

Investment in education an important countervailing force in addressing income inequality (photo: Istock by Getty Images).

When it comes to income inequality among American households, outcomes have varied widely across the 50 U.S. states.  The impact of international competition gets a lot of the blame, along with automation, in states that have fared the worst.

That has contributed to a backlash against free trade on the national level. Yet the states possess an effective tool of their own to address income polarization—investment in education.

In our study Hollowing Out: The Channels of Income Polarization in the United States, we show that middle-income households have shrunk as a proportion of the population since the 1960s. Those earning between 50 percent and 150 percent of the median income represented just 48 percent of total households in 2016, compared with 58 percent in 1968.

Of those families leaving the middle-income group, the proportion falling into the low-income ranks, which we describe as downward hollowing out or polarization, was greater than those advancing to upper income levels.

But the 50 states haven't felt these effects uniformly. We created Hollowing-Out Indices for each of the states for 2000-2016 to highlight these differences.

The chart of the week, shown above, breaks down the 50 U.S. states and the District of Columbia into three groups, based on how severely their middle class has experienced downward income hollowing out during 2000-2016.

Our research found that technological progress, measured by job routinization, and international trade, measured by job offshoring, can explain more than half of the rise in income polarization, with broadly equal contributions. Household characteristics, particularly better education, have had important countervailing effects on income polarization. Our state-by-state breakdown shows how the interplay between these forces has led to different outcomes for middle-income households, depending on where they live.

Take Nevada and Arkansas, for example, two states that had the greatest increase in polarization during 2000-2016. In these states, education played only a small countervailing role as technology and international trade lowered living standards for some middle-income households.

On the other extreme, take for example, Massachusetts and New Mexico. Technology and international competition have had less impact on income polarization in these two states than in Nevada and Arkansas. Meanwhile, education has done more to keep households in the middle class, making Massachusetts and New Mexico among the states that have experienced the smallest increases in income polarization during 2000-2016.

Technological progress and globalization have had positive effects, generating higher living standards, more productivity and faster growth. Yet, our work shows that they also have had important, and sometimes detrimental, side-effects on income distribution and household welfare. They are not the only factors at work, though. Investment in education can equip middle income households to withstand the hollowing-out forces of a changing global economy.



 -- via my feedly newsfeed

Monday, May 14, 2018

We don’t know what climate change will cost — that doesn’t mean we can ignore it

From TheHill.com:

We don't know what climate change will cost — that doesn't mean we can ignore it

http://thehill.com/opinion/energy-environment/386952-we-dont-know-what-climate-change-will-cost-that-doesnt-mean-we-can?#.WvcdbOuR57c.twitter

Guaranteed Jobs in America: Motivations and Limitations [feedly]

Guaranteed Jobs in America: Motivations and Limitations
http://cepr.net/publications/op-eds-columns/guaranteed-jobs-in-america-motivations-and-limitations

Here are five facts for understanding the argument that follows.

• For most of the past four decades, the U.S. labor market has not been at full employment, meaning there have often been too few job opportunities for job seekers. Even today, as we close in on full employment, pockets of weak labor demand persist.

• Since we've been keeping such data, starting the 1970s, the unemployment rate for African Americans has been twice that of whites.

• This differential contributes to large and persistent wage, income and wealth differences.

• For decades, Democrats and Republicans have argued that work must be a ladder out of poverty. Most recently, conservatives have been adding work requirements to anti-poverty programs.

• The Federal Reserve, when it judges inflation to be a risk, raises the unemployment rate (or prevents it from falling) to offset that risk.

Against these five facts, consider that Democratic policymakers are thinking seriously about government programs to create decent jobs for people who live in places where too few exist. As noted, even in year nine of the current expansion that boasts a 17-year low on the unemployment rate, there are far too many people and communities left behind. This, along with the black/white unemployment differential and its impact on minorities' living standards and future opportunities, is a classic market failure, providing a clear rationale for government intervention.

As economists who have long bemoaned the absence of full-employment labor markets, we are uplifted and gratified to see this policy thrust. Its logic follows directly from the fact that the game has long been rigged against those who lose the most from the dynamics engendered by the five facts. These include minorities, immigrants, the working-age poor, and all low- and middle-wage workers. In other words, not exactly a fringe group.

We would single out minority and poor families as uniquely vulnerable to these market failures. Majorities in Congress insist that they work in the paid labor market, but the lawmakers not only fail to guarantee them a decent job; they keep the minimum wage ridiculously low ($7.25 in states that still adhere to the federal level), threaten to slash job-training dollars and work supports, and do nothing to repair a criminal justice system that creates high barriers to labor market entry and advancement for many minority workers.

Meanwhile, when the job market finally heats up to the point where it's tight enough that those left out might get pulled into action, the Federal Reserve invariably tries to cool this heat. The Fed's interpretation of its mandate to maintain the lowest jobless rate consistent with stable prices leads it to push back on the very conditions needed to meet the requirements for work increasingly insisted upon by conservatives.

It is this vise grip on the economically vulnerable to which the job guarantee responds. As you'll see, we have serious concerns about its feasibility, but it is a rational response to an irrational and discriminatory economic system.

It is also a proposal with a large, technical problem: Because of the rigged system we just described, if a policy is introduced that guarantees good, permanent jobs to anyone who wants one, it will draw in tens of millions of workers from the private, low-wage labor market.

The package on offer from the one popular version of a job guarantee could be an improvement for at least 50 million currently employed workers. Even if the employers of half of these workers raise their pay to match the package offered through the job guarantee (a great outcome), that would still leave 25 million currently employed workers for whom the guaranteed job would be an upgrade.

Add in the unemployed and underemployed, and this gives us more than 35 million workers in this program and, quite possibly, many more. The federal government's current workforce, outside of the Postal Service, is 2.2 million, meaning the job guarantee would increase the size of the federal workforce by a factor of 10.

Sen. Cory Booker (D-N.J.) recently introduced a three-year pilot program offering a guaranteed job in 15 urban and rural places. That's a smart way to proceed, one that should allow us to see if our concerns are justified. If so, local governments in the pilot areas will find themselves having to essentially re-create the private low-wage labor market by undertaking a huge expansion of public-sector jobs.

Therefore, it makes sense to also try a less interventionist approach to job creation. Various members of Congress, including Sen. Chris Van Hollen (D-Md.) and Rep. Ro Khanna (D-Calif.), are rolling out ideas for subsidized jobs programs that target long-term jobless workers and/or those with persistent poverty-level earnings. The job would have to pay at least the minimum wage, and employers, who could be in the public, private or nonprofit sector, would receive a subsidy to cover wages, overhead and training costs. Unlike many earlier versions of such plans, these subsidies would last for a significant period: at least 18 months, and possibly as long as 30 months (with the opportunity for subsidized workers to "re-up" with a different employer if necessary).

We should test both ideas. If we try only the job guarantee and our suspicion that it calls for an unrealistic expansion of the public sector is correct, the cause of a national jobs program could suffer a setback. Less ambitious plans might prove to be more manageable and could still reach most of those now left behind.

But before we get too bogged down in pragmatic details, let's recognize how responsive these job ideas are to the contradictions that have long plagued the job market as faced by millions of people striving to get ahead in a system whose architecture is fundamentally stacked against them.


Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity.'

Dean Baker is senior economist at the Center for Economic and Policy Research.



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